Shift-Share Instruments and the Impact of Immigration

56 Pages Posted: 6 Feb 2018

See all articles by David A. Jaeger

David A. Jaeger

Ph.D. Program in Economics, City University of New York Graduate Center; National Bureau of Economic Research (NBER); University of Cologne - Department of Economics; IZA Institute of Labor Economics; CESifo (Center for Economic Studies and Ifo Institute); University College London - CReAM - Centre for Research and Analysis of Migration

Joakim Ruist

Göteborg University

Jan Stuhler

University College London

Multiple version iconThere are 3 versions of this paper

Abstract

A large literature exploits geographic variation in the concentration of immigrants to identify their impact on a variety of outcomes. To address the endogeneity of immigrants' location choices, the most commonly-used instrument interacts national inflows by country of origin with immigrants' past geographic distribution. We present evidence that estimates based on this "shift-share" instrument conflate the short- and long-run responses to immigration shocks. If the spatial distribution of immigrant inflows is stable over time, the instrument is likely to be correlated with ongoing responses to previous supply shocks. Estimates based on the conventional shift-share instrument are therefore unlikely to identify the short-run causal effect. We propose a "multiple instrumentation" procedure that isolates the spatial variation arising from changes in the country-of-origin composition at the national level and permits us to estimate separately the short- and long-run effects. Our results are a cautionary tale for a large body of empirical work, not just on immigration, that rely on shift-share instruments for causal inference.

Keywords: shift-share instrument, immigration, spatial correlation, past settlement instrument

JEL Classification: C36, J15, J21, J61

Suggested Citation

Jaeger, David A. and Ruist, Joakim and Stuhler, Jan, Shift-Share Instruments and the Impact of Immigration. IZA Discussion Paper No. 11307. Available at SSRN: https://ssrn.com/abstract=3117311

David A. Jaeger (Contact Author)

Ph.D. Program in Economics, City University of New York Graduate Center ( email )

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University of Cologne - Department of Economics ( email )

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Joakim Ruist

Göteborg University

Jan Stuhler

University College London ( email )

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